The Fine Print of Your Mortgage Contract

When it comes to mortgages and mortgage contracts, people seem to have more questions than answers; but if you ask the right questions, you will easy get all the answers you need.

Fine print of your mortgage

See more of this beautiful Saskatchewan condo at ComFree

Fine print of your mortgage contract #1

Breaking your contract
More often than not, if you decide that you want to break your mortgage contract, there is a penalty wherein you must pay three months’ interest or the interest rate differential (IRD). This penalty supposedly reflects the financial institution’s loss because you decided to break the contract.

The thing is, how do they determine what the IRD is? Many banks use an ambiguous enough language that allows them to calculate the IRD as they see fit, leaving clients no way to challenge the penalty. Make sure your lender uses a more indicative rate to calculate your payout penalty,

Fine print of your mortgage contract #2

Conversion rates
Pay close attention to the fixed rate that would be offered to you if you have a variable-rate mortgage and decided to lock in. Some lenders offer their best rate for any fixed term that lasts as long as the time left on your existing mortgage. Others offers a set discount off their current posted rates, which can be as little as 1%. This can make a difference of up to $150 per month in interest.

Fine print of your mortgage contract #3

Compounding Interest Rate
The rate at which your interest is compounded affects how much you stand to pay. While most mortgages compound twice a year, some variable-rate mortgages are compounded on a monthly basis. This change, however subtle it may seem, adds about 5 basis points to your current rate (turning 5% into 5.05%, for example). Some banks make this standard practice, so be sure to inquire about it.

Fine print of your mortgage contract #4

An attractive feature, even with conditions, portability allows you to take your mortgage with you should you buy a new home. And if you currently have a sweet low interest rate, being able to keep it without being subject to higher mortgage rates can be most welcome.

Fine print of your mortgage contract #5

Transferring your mortgage
Some mortgages allow you to actually transfer your mortgage to the person buying your home. If the interest rate you have on your mortgage is lower than current market rates, this can be a very attractive incentive to homebuyers.

Although there is some risk to this strategy (you are on the hook to the lender if the new homeowners fail to pay), but it is an option people use and it may make sense in certain circumstances.

Fine print of your mortgage contract #6

Prepayment privileges
Although most buyers do not have the luxury of being able to prepay their mortgages, it is an option available to most. But not all prepayment privileges are equal.

Some lenders allow you to prepay up to 25% of your original mortgage at any point during each 12-month period, while others allow you to prepay up to 10% but only once a year.

Fine print of your mortgage contract – read it

When it comes to mortgages, each borrower places different value on the varying features of a mortgage, but what is most important before committing to one is to ensure that you are well informed and ask the right questions.

If you’re ready to start searching for your perfect home, visit today.


  1. Rosy Saadeh says:

    Thanks for the addition, Jeff!

  2. Fine print of your mortgage … Switching on renewal. Find out if your lender registers the mortgage on the title of your property as a collateral mortgage or not. More and more lenders are registering the mortgage charge as a collateral mortgage making it nearly impossible to switch lenders on the maturity date of your term, (practically forcing you to renew with them at whatever rate they feel they wish to offer you). Collateral mortgages cannot be switched to a new lender which might have a better rate. In order to move your mortgage, you’ll need to have it discharged and the new charge from the next lender registered, resulting in costly legal fees.

Leave a Reply

Your email address will not be published. Required fields are marked *